Post-entry container port capacity expansion
Document Type
Journal article
Source Publication
Transportation Research: Part B
Publication Date
1-1-2012
Volume
46
Issue
1
First Page
120
Last Page
138
Keywords
Capacity expansion, Market preemption, Port competition, Pricing
Abstract
Port capacity development is a critical strategy for the growth of a new port, as well as for the development of existing ones, when both new and existing ports serve the same hinterland but have different competitive conditions. To study this strategy, we develop a two-stage duopoly model that comprises the pricing and capacity decisions of two heterogeneous players serving an increasing market. We identify the necessary condition for a port to increase its profit through capacity expansion, and characterize the condition when preemptive pricing by the dominant player is neither credible nor effective in preventing the smaller player from gaining market share. We also find the pure-strategy Nash equilibrium in the capacity expansion game for two ports that have different price sensitivities, as well as different operation and capacity investment costs. We apply the model results to the container port competition between Hong Kong and Shenzhen after Shenzhen port started its container operation in 1991. Our analysis explains the transition of market power from monopoly to duopoly, the fast development of Shenzhen Port, and the possible market structure changes with the continuing increase in demand.
DOI
10.1016/j.trb.2011.09.001
Print ISSN
01912615
E-ISSN
18792367
Publisher Statement
Copyright © 2011 Elsevier Ltd
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Luo, M., Liu, L., & Gao, F. (2012). Post-entry container port capacity expansion. Transportation Research: Part B, 46(1), 120-138. doi: 10.1016/j.trb.2011.09.001